##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2007
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from to
 Commission file number: 000-50552
 Asset Acceptance Capital Corp.
 Exact name of registrant as specified in its charter
 Delaware
    
    80-0076779(State or other jurisdiction of
    
    (I.R.S.Employer Identification No.)incorporation or organization)
 28405 Van Dyke Avenue
Warren, Michigan 48093  Address of principal executive offices
 Registrants telephone number, including area code:
(586) 939-9600
  þ o
  o þ o
  o þ




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##### 



ASSET ACCEPTANCE CAPITAL CORP.
 Quarterly Report on Form 10-Q
 TABLE OF CONTENTS
 PagePART I  Financial InformationItem 1.
    
    Consolidated Financial Statements (unaudited)
    
    
    3Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    15Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    29Item 4.
    
    Controls and Procedures
    
    
    29PART II  Other InformationItem 1.
    
    Legal Proceedings
    
    
    29Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    30Item 6.
    
    Exhibits
    
    
    30Signatures
    
    
    31Exhibits:
    
    10.1 2007 Annual Incentive Compensation Plan for Management31.1 Rule 13a-14(a) Certification of Chief Executive Officer31.2 Rule 13a-14(a) Certification of Chief Financial Officer32.1 Section 1350 Certification of Chief Executive Officer and Chief Financial OfficerCertificationCertificationCertification
  Quarterly Report on Form 10-Q
 www.assetacceptance.com
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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1 . Consolidated Financial Statements
 ASSET ACCEPTANCE CAPITAL CORP.
 Consolidated Statements of Financial Position
(Unaudited)
 March 31, 2007
    
    
    December 31, 2006ASSETSCash
    
    $
    9,724,661
    
    
    $
    11,307,451Purchased receivables, net
    
    
    307,983,677
    
    
    
    300,840,508Property and equipment, net
    
    
    12,233,421
    
    
    
    12,708,611Goodwill
    
    
    14,323,071
    
    
    
    14,323,071Income taxes receivable
    
    
    
    
    
    
    3,235,426Other assets
    
    
    7,929,013
    
    
    
    8,167,755Total assets
    
    $
    352,193,843
    
    
    $
    350,582,822LIABILITIES AND STOCKHOLDERS EQUITYLiabilities:Accounts payable
    
    $
    3,772,846
    
    
    $
    3,666,042Accrued liabilities
    
    
    13,664,655
    
    
    
    13,026,622Line of credit
    
    
    7,000,000
    
    
    
    17,000,000Income taxes payable
    
    
    1,445,956
    
    
    
    Deferred tax liability, net
    
    
    60,830,004
    
    
    
    60,632,218Capital lease obligations
    
    
    55,926
    
    
    
    79,821Total liabilities
    
    
    86,769,387
    
    
    
    94,404,703Stockholders equity:Preferred stock, $0.01 par value, 10,000,000 shares authorized, no
shares issued and outstanding
    
    
    
    
    
    
    Common stock, $0.01 par value, 100,000,000 shares authorized;
issued shares  37,250,389 and 37,225,275 at March 31, 2007
and December 31, 2006, respectively
    
    
    372,504
    
    
    
    372,253Additional paid in capital
    
    
    161,934,996
    
    
    
    161,841,103Retained earnings
    
    
    144,095,753
    
    
    
    134,244,500Common stock
in treasury; at cost, 2,551,764 and 2,505,160 shares at March 31,
2007 and December 31, 2006, respectively
    
    
    (40,978,797
    )
    
    
    (40,279,737
    )Total stockholders equity
    
    
    265,424,456
    
    
    
    256,178,119Total liabilities and stockholders equity
    
    $
    352,193,843
    
    
    $
    350,582,822
  3




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ASSET ACCEPTANCE CAPITAL CORP.
 Consolidated Statements of Income
(Unaudited)
 Three months ended March 31,2007
    
    
    2006RevenuesPurchased receivable revenues, net
    
    $
    66,782,034
    
    
    $
    67,264,780Other revenues, net
    
    
    523,993
    
    
    
    116,205Total revenues
    
    
    67,306,027
    
    
    
    67,380,985ExpensesSalaries and benefits
    
    
    22,448,455
    
    
    
    23,325,502Collections expense
    
    
    23,069,940
    
    
    
    18,814,848Occupancy
    
    
    2,339,385
    
    
    
    2,174,856Administrative
    
    
    2,213,356
    
    
    
    2,350,499Restructuring charges
    
    
    148,111
    
    
    
    Depreciation and amortization
    
    
    1,088,892
    
    
    
    889,617(Gain) loss on disposal of equipment
    
    
    (5,415
    )
    
    
    145Total operating expenses
    
    
    51,302,724
    
    
    
    47,555,467Income from operations
    
    
    16,003,303
    
    
    
    19,825,518Other income (expense)Interest income
    
    
    15,727
    
    
    
    580,957Interest expense
    
    
    (263,818
    )
    
    
    (177,544
    )Other
    
    
    12,209
    
    
    
    (9,539
    )Income before income taxes
    
    
    15,767,421
    
    
    
    20,219,392Income taxes
    
    
    5,916,168
    
    
    
    7,629,297Net income
    
    $
    9,851,253
    
    
    $
    12,590,095Weighted average number of shares:Basic
    
    
    34,718,820
    
    
    
    37,213,179Diluted
    
    
    34,725,992
    
    
    
    37,243,261Earnings per common share outstanding:Basic
    
    $
    0.28
    
    
    $
    0.34Diluted
    
    $
    0.28
    
    
    $
    0.34
  4




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ASSET ACCEPTANCE CAPITAL CORP.
 Consolidated Statements of Cash Flows
(Unaudited)
 Three months ended March 31,2007
    
    
    2006Cash flows from operating activitiesNet income
    
    $
    9,851,253
    
    
    $
    12,590,095Adjustments to reconcile net income to net cash provided
by operating activities:Depreciation and amortization
    
    
    1,088,892
    
    
    
    889,617Deferred income taxes
    
    
    197,786
    
    
    
    1,042,794Share-based compensation expense
    
    
    94,144
    
    
    
    204,755Net impairment of purchased receivables
    
    
    4,473,100
    
    
    
    2,694,000Non-cash revenue
    
    
    (438,475
    )
    
    
    (503,347
    )(Gain) loss on disposal of equipment
    
    
    (5,415
    )
    
    
    145Changes in assets and liabilities:Increase in accounts payable and other liabilities
    
    
    744,837
    
    
    
    4,854,096Decrease in other assets
    
    
    73,747
    
    
    
    66,592Increase in
income taxes payable, net
    
    
    4,681,382
    
    
    
    5,100,000Net cash provided by operating activities
    
    
    20,761,251
    
    
    
    26,938,747Cash flows from investing activitiesInvestment in purchased receivables, net of buy backs
    
    
    (36,214,485
    )
    
    
    (25,432,528
    )Principal collected on purchased receivables
    
    
    25,036,691
    
    
    
    19,934,425Purchase of property and equipment
    
    
    (454,785
    )
    
    
    (2,078,772
    )Proceeds from sale of property and equipment
    
    
    11,493
    
    
    
    Net cash used in investing activities
    
    
    (11,621,086
    )
    
    
    (7,576,875
    )Cash flows from financing activitiesBorrowings under line of credit
    
    
    17,000,000
    
    
    
    Repayment of line of credit
    
    
    (27,000,000
    )
    
    
    Repayment of capital lease obligations
    
    
    (23,895
    )
    
    
    (38,410
    )Purchase of treasury shares
    
    
    (699,060
    )
    
    
    (302,406
    )Net cash used in financing activities
    
    
    (10,722,955
    )
    
    
    (340,816
    )Net (decrease) increase in cash
    
    
    (1,582,790
    )
    
    
    19,021,056Cash at beginning of period
    
    
    11,307,451
    
    
    
    50,518,934Cash at end of period
    
    $
    9,724,661
    
    
    $
    69,539,990Supplemental disclosure of cash flow informationCash paid for interest
    
    $
    208,083
    
    
    $
    132,239Cash paid for income taxes
    
    
    1,037,000
    
    
    
    1,506,093Non-cash investing and financing activities:Capital lease obligations incurred
    
    
    
    
    
    
    24,171
  5




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ASSET ACCEPTANCE CAPITAL CORP.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 1. Basis of Presentation and Summary of Significant Accounting Policies
 Nature of Operations
    Reporting Entity
  Cash
  Purchased Receivables Portfolios and Revenue Recognition
  6




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Three months ended March 31,2007
    
    
    2006Beginning balance
    
    $
    300,840,508
    
    
    $
    248,990,772Investment in purchased receivables, net of buybacks
    
    
    36,214,485
    
    
    
    26,032,528Cash collections
    
    
    (95,853,350
    )
    
    
    (89,389,858
    )Purchased receivable revenues
    
    
    66,782,034
    
    
    
    67,264,780Ending balance
    
    $
    307,983,677
    
    
    $
    252,898,222
  Three months ended March 31,2007
    
    
    2006Beginning balance
    
    $
    958,629,284
    
    
    $
    848,545,458Revenue recognized on purchased receivables
    
    
    (66,782,034
    )
    
    
    (67,264,780
    )Additions due to purchases during the period
    
    
    63,553,108
    
    
    
    54,694,181Reclassifications from nonaccretable yield
    
    
    20,306,279
    
    
    
    51,697,410Ending balance (1)
    
    $
    975,706,637
    
    
    $
    887,672,269
 
 (1)
    
    Accretable yields are a function of estimated remaining cash flows and are based on
historical cash collections. Please refer to Forward-Looking Statements on page 15 and
Critical Accounting Policies on page 28 for further information regarding these estimates.  Three months ended March 31,2007
    
    
    2006Revenues from fully amortized pools:Pools that amortized before 60 months
    
    $
    5,273,827
    
    
    $
    8,531,014Pools that are 60 months or older
    
    
    11,698,801
    
    
    
    6,787,986Pools under full cost recovery
    
    
    1,489,854
    
    
    
    1,387,108Total revenue from fully amortized pools
    
    $
    18,462,482
    
    
    $
    16,706,108
  8




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Three months ended March 31,2007
    
    
    2006Beginning balance
    
    $
    39,714,055
    
    
    $
    22,285,355Impairments
    
    
    4,714,000
    
    
    
    3,295,000Reversal of impairments (1)
    
    
    (240,900
    )
    
    
    (601,000
    )Deductions (2)
    
    
    (362,000
    )
    
    
    Ending balance
    
    $
    43,825,155
    
    
    $
    24,979,355
 
 (1)
    
    The impairment reversals relate to impairment charges recognized during the fiscal years
ended December 31, 2006 and 2005.(2)
    
    Deductions represent impairments on fully amortized purchased receivable portfolios that were
written-off and cannot be reversed. Seasonality
  Collections from Third Parties
  Accrued Liabilities
  March 31, 2007
    
    
    December 31, 2006Accrued payroll, benefits and bonuses
    
    $
    8,621,425
    
    
    $
    8,408,244Deferred rent
    
    
    2,800,391
    
    
    
    2,858,418Accrued general and administrative expenses
    
    
    1,660,494
    
    
    
    1,394,762Accrued restructuring charges
    
    
    135,690
    
    
    
    Other accrued expenses
    
    
    446,655
    
    
    
    365,198Total accrued liabilities
    
    $
    13,664,655
    
    
    $
    13,026,622
 Concentration of Risk
  9




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Earnings Per Share
  Reclassifications
  Recently Issued Accounting Pronouncements
 SFAS Interpretation No. 48, Accounting for Uncertainty in Income Taxes  an interpretation of
FASB Statement No. 109
  SFAS No. 157, Fair Value Measurements
  2. Line of Credit
  
    
    funds borrowed can be used to purchase portfolios of charged-off receivables and for
general corporate purposes;
    
    leverage ratio (as defined in the line of Credit Agreement) cannot exceed 1.5 to 1.0;
    
    debt to total capitalization ratio (as defined in the line of Credit Agreement) cannot
exceed 1.25 to 1.0; and
    
    tangible net worth must exceed $145.0 million plus 50% of net income after September
30, 2004, which required a balance of $204.6 million as of March 31, 2007.
  10




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3. Property and Equipment
  March 31, 2007
    
    
    December 31, 2006Computers and software
    
    $
    12,484,893
    
    
    $
    12,343,711Furniture and fixtures
    
    
    10,086,211
    
    
    
    10,001,986Leasehold improvements
    
    
    2,054,509
    
    
    
    2,051,391Equipment under capital lease
    
    
    307,001
    
    
    
    321,783Automobiles
    
    
    51,709
    
    
    
    47,404Total property and equipment, cost
    
    
    24,984,323
    
    
    
    24,766,275Less accumulated depreciation
    
    
    (12,750,902
    )
    
    
    (12,057,664
    )Net property and equipment
    
    $
    12,233,421
    
    
    $
    12,708,611
 4. Restructuring Charges and Change in Accounting Estimates
    March 31, 2007One-time termination benefits
    
    $
    84,119Long-lived assets charge
    
    
    51,571Other exit costs
    
    
    12,421Total restructuring charges
    
    $
    148,111
   One-Time
Termination Benefits
    

Long-Lived
AssetsCharge
    

OtherExit
Costs
    

TotalRestructuring
liability as of January 1, 2007
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Costs
incurred and charged to expense
    
    
    84,119
    
    
    
    51,571
    
    
    
    12,421
    
    
    
    148,111Costs paid
    
    
    
    
    
    
    
    
    
    
    (12,421
    )
    
    
    (12,421
    )Restructuring
liability as of March 31, 2007
    
    $
    84,119
    
    
    $
    51,571
    
    
    $
    
    
    
    $
    135,690
  11




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5. Share-Based Compensation
   Stock Options
  Options issue year:
    
    2007
    
    2006Expected volatility
    
    47.00%
    
    46.00%Expected dividends
    
    0.00%
    
    0.00%Expected term
    
    5 Years
    
    5 YearsRisk-free rate
    
    4.68%
    
    4.55%-5.02%
  12




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Weighted-Average
    
    
    AggregateOptions
    
    
    Weighted-Average
    
    
    Remaining
    
    
    IntrinsicOutstanding
    
    
    Exercise Price
    
    
    Contractual Term
    
    
    ValueJanuary 1, 2007
    
    
    327,726
    
    
    $
    18.95Granted
    
    
    301
    
    
    
    15.56Exercised
    
    
    
    
    
    
    Forfeited or expired
    
    
    
    
    
    
    Outstanding at March 31, 2007
    
    
    328,027
    
    
    
    18.95
    
    
    
    8.17
    
    
    $
    30,350Exercisable at March 31, 2007
    
    
    290,527
    
    
    $
    19.02
    
    
    
    8.04
    
    
    $
    21,150
   Deferred Stock Units
    Weighted-AverageGrant-DateDSUs
    
    
    Fair ValueJanuary 1, 2007
    
    
    
    
    
    $
    Granted
    
    
    1,809
    
    
    
    15.56Balance at March 31, 2007
    
    
    1,809
    
    
    $
    15.56
  Restricted Shares
   13




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6. Litigation Contingencies
  7. Income Taxes
    8. Subsequent Event  Special Cash Dividend and Share Repurchase
  The Company has not yet commenced the tender offer. On the commencement
date of the tender offer, an offer to purchase, a letter of transmittal and related documents will be filed with the Securities and Exchange Commission, will be mailed
to shareholders of record and will also be made available for distribution to beneficial owners of shares of common stock.
The solicitation of offers to buy the Companys common stock will only be made pursuant to the offer to purchase, the letter of transmittal and related documents.
When they are available, shareholders should read those materials carefully because they will contain important information, including the various
terms of, and conditions to, the tender offer. When they are available, shareholders will be able to obtain the offer to purchase, the letter of transmittal and related
documents without charge from the Securities and Exchange Commissions website at www.sec.gov or from the information
agent that we select. Shareholders are urged to read carefully those materials when they become available prior to making
any decisions with respect to the tender offer.
 14




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Company Overview
      Forward-Looking Statements
  15




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
    
    our ability to purchase charged-off receivable portfolios on acceptable terms and in sufficient amounts;
    
    our ability to recover sufficient amounts on our charged-off receivable portfolios;
    
    our ability to hire and retain qualified personnel;
    
    a decrease in collections if bankruptcy filings increase or if bankruptcy laws or other
debt collection laws change;
    
    a decrease in collections as a result of negative attention or news regarding the debt
collection industry and debtors willingness to pay the debt we acquire;
    
    our ability to make reasonable estimates of the timing and amount of future cash
receipts for purposes of recording purchased receivable revenues in accordance with
Accounting Standards Executive Committee Statement of Position 03-3 as well as the
Accounting Standards Executive Committee Practice Bulletin 6;
    
    our ability to acquire and to collect on charged-off receivable portfolios in industries
in which we have little or no experience;
    
    our ability to maintain existing, and secure additional financing on acceptable terms;
    
    the loss of any of our executive officers or other key personnel;
    
    the costs, uncertainties and other effects of legal and administrative proceedings;
    
    our ability to effectively manage excess capacity, reduce workforce or close remote call center locations;
    
    the temporary or permanent loss of our computer or telecommunications systems, as well
as our ability to respond to changes in technology and increased competition;
    
    changes in our overall performance based upon significant
macroeconomic conditions;
    
    our ability to substantiate our application of tax rules against examinations and
challenges made by tax authorities; and
    
    other unanticipated events and conditions that may hinder our ability to compete.
 16




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Results of Operations
  Percent of Total Revenues
    
    Percent of Cash CollectionsThree Months Ended March 31,
    
    Three Months Ended March 31,2007
    
    2006
    
    2007
    
    2006RevenuesPurchased receivable revenues, net
    
    
    99.2
    %
    
    
    99.8
    %
    
    
    69.7
    %
    
    
    75.3
    %Other revenue, net
    
    
    0.8
    
    
    
    0.2
    
    
    
    0.5
    
    
    
    0.1Total revenues
    
    
    100.0
    
    
    
    100.0
    
    
    
    70.2
    
    
    
    75.4ExpensesSalaries and benefits
    
    
    33.3
    
    
    
    34.6
    
    
    
    23.4
    
    
    
    26.1Collections expense
    
    
    34.3
    
    
    
    27.9
    
    
    
    24.1
    
    
    
    21.1Occupancy
    
    
    3.5
    
    
    
    3.3
    
    
    
    2.4
    
    
    
    2.4Administrative
    
    
    3.3
    
    
    
    3.5
    
    
    
    2.3
    
    
    
    2.6Restructuring charges
    
    
    0.2
    
    
    
    
    
    
    
    0.1
    
    
    
    Depreciation and amortization
    
    
    1.6
    
    
    
    1.3
    
    
    
    1.1
    
    
    
    1.0(Gain) loss on disposal of equipment
    
    
    (0.0
    )
    
    
    0.0
    
    
    
    (0.0
    )
    
    
    0.0Total operating expenses
    
    
    76.2
    
    
    
    70.6
    
    
    
    53.4
    
    
    
    53.2Income from operations
    
    
    23.8
    
    
    
    29.4
    
    
    
    16.8
    
    
    
    22.2Other income (expense)Interest income
    
    
    0.0
    
    
    
    0.9
    
    
    
    0.0
    
    
    
    0.6Interest expense
    
    
    (0.4
    )
    
    
    (0.3
    )
    
    
    (0.3
    )
    
    
    (0.2
    )Other
    
    
    0.0
    
    
    
    (0.0
    )
    
    
    0.0
    
    
    
    (0.0
    )Income before income taxes
    
    
    23.4
    
    
    
    30.0
    
    
    
    16.5
    
    
    
    22.6Income taxes
    
    
    8.8
    
    
    
    11.3
    
    
    
    6.2
    
    
    
    8.5Net income
    
    
    14.6
    %
    
    
    18.7
    %
    
    
    10.3
    %
    
    
    14.1
    %
 Three Months Ended March 31, 2007 Compared To Three Months Ended March 31, 2006
 Revenue
   17




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Operating Expenses
  Salaries and Benefits.
 Collections Expense.
 Occupancy.
 Administrative.
 Restructuring Charges.
 Depreciation and Amortization.
 18




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Interest Income.
 Interest Expense.
 Income Taxes.
 19




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Supplemental Performance Data
 Portfolio Performance
  Total EstimatedCash Collections
    
    
    Estimated
    
    
    Total
    
    
    Collections as aNumber of
    
    
    Purchase
    
    
    Including Cash
    
    
    Remaining
    
    
    Estimated
    
    
    Percentage ofPurchase Period
    
    Portfolios
    
    
    Price (1)
    
    
    Sales (2)
    
    
    Collections (3)(4)
    
    
    Collections
    
    
    Purchase Price (2)(dollars in thousands)1997
    
    
    45
    
    
    $
    4,345
    
    
    $
    29,455
    
    
    $
    231
    
    
    $
    29,686
    
    
    
    683
    %1998
    
    
    61
    
    
    
    16,411
    
    
    
    81,475
    
    
    
    3,153
    
    
    
    84,628
    
    
    
    5161999
    
    
    51
    
    
    
    12,924
    
    
    
    60,545
    
    
    
    4,937
    
    
    
    65,482
    
    
    
    5072000
    
    
    49
    
    
    
    20,592
    
    
    
    119,260
    
    
    
    16,467
    
    
    
    135,727
    
    
    
    6592001
    
    
    62
    
    
    
    43,116
    
    
    
    242,466
    
    
    
    48,451
    
    
    
    290,917
    
    
    
    6752002
    
    
    94
    
    
    
    72,114
    
    
    
    300,671
    
    
    
    102,228
    
    
    
    402,899
    
    
    
    5592003
    
    
    76
    
    
    
    87,157
    
    
    
    323,277
    
    
    
    188,426
    
    
    
    511,703
    
    
    
    5872004
    
    
    106
    
    
    
    86,260
    
    
    
    171,305
    
    
    
    190,805
    
    
    
    362,110
    
    
    
    4202005
    
    
    104
    
    
    
    99,580
    
    
    
    98,673
    
    
    
    220,673
    
    
    
    319,346
    
    
    
    3212006 (5)
    
    
    154
    
    
    
    142,959
    
    
    
    59,263
    
    
    
    409,509
    
    
    
    468,772
    
    
    
    3282007 (6)
    
    
    33
    
    
    
    36,565
    
    
    
    1,438
    
    
    
    98,810
    
    
    
    100,248
    
    
    
    274Total
    
    
    835
    
    
    $
    622,023
    
    
    $
    1,487,828
    
    
    $
    1,283,690
    
    
    $
    2,771,518
    
    
    
    446
    %
 
 (1)
    
    Purchase price refers to the cash paid to a seller to acquire a portfolio less the purchase
price refunded by a seller due to the return of non-compliant accounts (also defined as
buybacks) less the purchase price for accounts that were sold at the time of purchase to
another debt purchaser.(2)
    
    For purposes of this table, cash collections include selected cash sales which were entered
into subsequent to purchase. Cash sales, however, exclude the sales of portfolios which
occurred at the time of purchase.(3)
    
    Estimated remaining collections are based on historical cash collections. Please refer to
Forward-Looking Statements on page 15 and Critical Accounting Policies on page 28 for further
information regarding these estimates.(4)
    
    Estimated remaining collections refers to the sum of all future projected cash collections on
our owned portfolios using a 120 month collection forecast from the date of purchase.(5)
    
    Includes 62 portfolios from the acquisition of PARC on April 28, 2006 that were allocated a
purchase price value of $8.3 million.(6)
    
    Includes only three months of activity through March 31, 2007.
 20




---



##### Table of Contents



UnamortizedUnamortized
    
    
    
    
    
    
    Balance as a
    
    
    UnamortizedBalance as of
    
    
    Purchase
    
    
    Percentage of
    
    
    Balance as aPurchase Period
    
    March 31, 2007
    
    
    Price (1)
    
    
    Purchase Price
    
    
    Percentage of Total(dollars in thousands)2002
    
    $
    7,686
    
    
    $
    72,114
    
    
    
    10.7
    %
    
    
    2.5
    %2003
    
    
    24,164
    
    
    
    87,157
    
    
    
    27.7
    
    
    
    7.82004
    
    
    45,551
    
    
    
    86,260
    
    
    
    52.8
    
    
    
    14.82005
    
    
    73,077
    
    
    
    99,580
    
    
    
    73.4
    
    
    
    23.72006 (2)
    
    
    120,743
    
    
    
    142,959
    
    
    
    84.5
    
    
    
    39.32007 (3)
    
    
    36,763
    
    
    
    36,565
    
    
    
    100.5
    
    
    
    11.9Total
    
    $
    307,984
    
    
    $
    524,635
    
    
    
    58.7
    %
    
    
    100.0
    %
 
 (1)
    
    Purchase price refers to the cash paid to a seller to acquire a portfolio less the purchase
price refunded by a seller due to the return of non-compliant accounts (also defined as
buybacks) less the purchase price for accounts that were sold at the time of purchase to
another debt purchaser.(2)
    
    Includes 62 portfolios from the acquisition of PARC on April 28, 2006 that were allocated a
purchase price value of $8.3 million.(3)
    
    Includes only three months of activity through March 31, 2007.  Three months ended March 31, 2007Year of
    
    
    
    
    
    
    
    
    
    Amortization
    
    
    Weighted
    
    
    Net
    
    
    Zero BasisPurchase
    
    Collections
    
    
    Revenue
    
    
    Rate
    
    
    Avg. Yield(1)
    
    
    Impairments
    
    
    Collections2001 and prior
    
    $
    10,330,950
    
    
    $
    10,244,254
    
    
    
    0.8
    %
    
    
    N/M
    %
    
    $
    
    
    
    $
    10,166,7622002
    
    
    12,016,761
    
    
    
    7,943,214
    
    
    
    33.9
    
    
    
    26.01
    
    
    
    216,800
    
    
    
    4,554,5222003
    
    
    16,780,060
    
    
    
    11,649,217
    
    
    
    30.6
    
    
    
    15.03
    
    
    
    763,300
    
    
    
    2,676,5042004
    
    
    14,034,358
    
    
    
    9,179,365
    
    
    
    34.6
    
    
    
    7.64
    
    
    
    1,931,000
    
    
    
    768,6172005
    
    
    14,740,661
    
    
    
    10,436,031
    
    
    
    29.2
    
    
    
    4.98
    
    
    
    934,000
    
    
    
    10,5362006
    
    
    26,513,052
    
    
    
    16,379,887
    
    
    
    38.2
    
    
    
    4.41
    
    
    
    628,000
    
    
    
    285,5412007
    
    
    1,437,508
    
    
    
    950,066
    
    
    
    33.9
    
    
    
    2.63
    
    
    
    
    
    
    
    Totals
    
    $
    95,853,350
    
    
    $
    66,782,034
    
    
    
    30.3
    
    
    
    7.25
    
    
    $
    4,473,100
    
    
    $
    18,462,482
 Three months ended March 31, 2006Year of
    
    
    
    
    
    
    
    
    
    Amortization
    
    
    Weighted
    
    
    Net
    
    
    Zero BasisPurchase
    
    Collections
    
    
    Revenue
    
    
    Rate
    
    
    Avg. Yield(1)
    
    
    Impairments
    
    
    Collections2001 and prior
    
    $
    14,410,828
    
    
    $
    12,669,200
    
    
    
    12.1
    
    
    
    N/M
    %
    
    $
    (10,000
    )
    
    $
    10,462,5912002
    
    
    16,082,438
    
    
    
    12,078,566
    
    
    
    24.9
    
    
    
    15.13
    
    
    
    108,000
    
    
    
    2,767,4202003
    
    
    23,807,397
    
    
    
    17,456,259
    
    
    
    26.7
    
    
    
    12.31
    
    
    
    1,134,000
    
    
    
    3,054,0162004
    
    
    18,245,705
    
    
    
    12,616,974
    
    
    
    30.8
    
    
    
    6.57
    
    
    
    339,000
    
    
    
    422,0812005
    
    
    16,430,263
    
    
    
    11,939,277
    
    
    
    27.3
    
    
    
    4.61
    
    
    
    1,123,000
    
    
    
    2006
    
    
    413,227
    
    
    
    504,504
    
    
    
    (22.1
    )
    
    
    1.87
    
    
    
    
    
    
    
    2007
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/ATotals
    
    $
    89,389,858
    
    
    $
    67,264,780
    
    
    
    24.8
    
    
    
    8.67
    
    
    $
    2,694,000
    
    
    $
    16,706,108
 
 (1)
    
    Weighted average yield is the average monthly yield determined by dividing purchased receivable
revenues recognized in the period by the average of the beginning monthly carrying values of the
purchased receivables for the period presented. 21




---



##### Table of Contents



Account Representative Productivity and Turnover
  Account Representatives by Experience
 Three months ended
    
    Year endedMarch 31,
    
    December 31,Number of account representatives:
    
    2007
    
    2006(3)
    
    2006(3)
    
    2005(3)One year or more (1)
    
    
    600
    
    
    
    560
    
    
    
    573
    
    
    
    510Less than one year (2)
    
    
    297
    
    
    
    524
    
    
    
    399
    
    
    
    540Total account representatives
    
    
    897
    
    
    
    1,084
    
    
    
    972
    
    
    
    1,050
 
 (1)
    
    Based on number of average traditional call center Full Time Equivalent (FTE) account
representatives and supervisors with one or more years of service.(2)
    
    Based on number of average traditional call center FTE account representatives and
supervisors with less than one year of service, including new employees in training.(3)
    
    Excludes PARCs FTE account representatives for periods prior to January 1, 2007. Collection Averages by Experience
 Three months ended
    
    Year endedMarch 31,
    
    December 31,Collection averages:
    
    2007
    
    2006(3)
    
    2006(3)
    
    2005(3)One year or more (1)
    
    $
    60,294
    
    
    $
    52,302
    
    
    $
    193,951
    
    
    $
    199,734Less than one year (2)
    
    
    41,225
    
    
    
    30,980
    
    
    
    123,253
    
    
    
    117,859Overall average
    
    
    53,988
    
    
    
    41,995
    
    
    
    164,932
    
    
    
    157,661
 
 (1)
    
    Based on number of average traditional call center FTE account representatives and
supervisors with one or more years of service.(2)
    
    Based on number of average traditional call center FTE account representatives and
supervisors with less than one year of service, including new employees in training.(3)
    
    Excludes PARCs FTE account representatives for periods prior to January 1, 2007.  Turnover by Experience
 Three months ended
    
    Year endedMarch 31,
    
    December 31,2007
    
    2006(3)
    
    2006(3)
    
    2005(3)Collection department turnover:One year or more (1)
    
    
    44.3
    %
    
    
    28.6
    %
    
    
    44.9
    %
    
    
    39.3
    %Less than one year (2)
    
    
    116.6
    
    
    
    98.3
    
    
    
    107.4
    
    
    
    117.8Overall turnover
    
    
    66.6
    
    
    
    61.5
    
    
    
    69.5
    
    
    
    78.8
 
 (1)
    
    Based on number of traditional call center employees within the collection department with
one or more years of service.(2)
    
    Based on number of traditional call center employees within the collection department with
less than one year of service, including new employees in training.(3)
    
    Excludes traditional call center employees within PARCs collection department for periods
prior to January 1, 2007. 22




---



##### Table of Contents



Cash Collections
  Historical Collections (1)
 ThreeMonthsEndedPurchase
    
    Purchase
    
    
    Year Ended December 31,
    
    
    March 31,Period
    
    Price (3)
    
    
    1997
    
    
    1998
    
    
    1999
    
    
    2000
    
    
    2001
    
    
    2002
    
    
    2003
    
    
    2004
    
    
    2005
    
    
    2006
    
    
    2007(dollars in thousands)Pre-1997
    
    
    
    
    
    $
    7,713
    
    
    $
    5,684
    
    
    $
    4,493
    
    
    $
    3,718
    
    
    $
    2,607
    
    
    $
    1,862
    
    
    $
    1,606
    
    
    $
    1,283
    
    
    $
    1,270
    
    
    $
    918
    
    
    $
    1851997
    
    $
    4,345
    
    
    
    1,682
    
    
    
    4,919
    
    
    
    5,573
    
    
    
    5,017
    
    
    
    3,563
    
    
    
    2,681
    
    
    
    1,784
    
    
    
    1,526
    
    
    
    1,342
    
    
    
    1,090
    
    
    
    2231998
    
    
    16,411
    
    
    
    
    
    
    
    4,835
    
    
    
    15,220
    
    
    
    15,045
    
    
    
    12,962
    
    
    
    11,021
    
    
    
    7,987
    
    
    
    5,582
    
    
    
    4,653
    
    
    
    3,352
    
    
    
    6941999
    
    
    12,924
    
    
    
    
    
    
    
    
    
    
    
    3,761
    
    
    
    11,331
    
    
    
    10,862
    
    
    
    9,750
    
    
    
    8,278
    
    
    
    6,675
    
    
    
    5,022
    
    
    
    3,935
    
    
    
    8102000
    
    
    20,592
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,895
    
    
    
    23,444
    
    
    
    22,559
    
    
    
    20,318
    
    
    
    17,196
    
    
    
    14,062
    
    
    
    10,603
    
    
    
    2,0822001
    
    
    43,116
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,630
    
    
    
    50,327
    
    
    
    50,967
    
    
    
    45,713
    
    
    
    39,865
    
    
    
    30,472
    
    
    
    6,3372002
    
    
    72,114
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,340
    
    
    
    70,813
    
    
    
    72,024
    
    
    
    67,649
    
    
    
    55,373
    
    
    
    12,0172003
    
    
    87,157
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36,067
    
    
    
    94,564
    
    
    
    94,234
    
    
    
    79,423
    
    
    
    16,7802004
    
    
    86,260
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,365
    
    
    
    68,354
    
    
    
    62,673
    
    
    
    14,0342005
    
    
    99,580
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,459
    
    
    
    60,280
    
    
    
    14,7412006 (2)
    
    
    142,959
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32,751
    
    
    
    26,5132007
    
    
    36,565
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,437Total
    
    
    
    
    
    $
    9,395
    
    
    $
    15,438
    
    
    $
    29,047
    
    
    $
    44,006
    
    
    $
    71,068
    
    
    $
    120,540
    
    
    $
    197,820
    
    
    $
    267,928
    
    
    $
    319,910
    
    
    $
    340,870
    
    
    $
    95,853
 Cumulative Collections (1)
 TotalThroughPurchase
    
    Purchase
    
    Total Through December 31,
    
    March 31,Period
    
    Price (3)
    
    1997
    
    1998
    
    1999
    
    2000
    
    2001
    
    2002
    
    2003
    
    2004
    
    2005
    
    2006
    
    2007(dollars in thousands)1997
    
    $
    4,345
    
    
    $
    1,682
    
    
    $
    6,601
    
    
    $
    12,174
    
    
    $
    17,191
    
    
    $
    20,754
    
    
    $
    23,435
    
    
    $
    25,219
    
    
    $
    26,745
    
    
    $
    28,087
    
    
    $
    29,177
    
    
    $
    29,4001998
    
    
    16,411
    
    
    
    
    
    
    
    4,835
    
    
    
    20,055
    
    
    
    35,100
    
    
    
    48,062
    
    
    
    59,083
    
    
    
    67,070
    
    
    
    72,652
    
    
    
    77,305
    
    
    
    80,657
    
    
    
    81,3511999
    
    
    12,924
    
    
    
    
    
    
    
    
    
    
    
    3,761
    
    
    
    15,092
    
    
    
    25,954
    
    
    
    35,704
    
    
    
    43,982
    
    
    
    50,657
    
    
    
    55,679
    
    
    
    59,614
    
    
    
    60,4242000
    
    
    20,592
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,895
    
    
    
    32,339
    
    
    
    54,898
    
    
    
    75,216
    
    
    
    92,412
    
    
    
    106,474
    
    
    
    117,077
    
    
    
    119,1592001
    
    
    43,116
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,630
    
    
    
    67,957
    
    
    
    118,924
    
    
    
    164,637
    
    
    
    204,502
    
    
    
    234,974
    
    
    
    241,3112002
    
    
    72,114
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,340
    
    
    
    93,153
    
    
    
    165,177
    
    
    
    232,826
    
    
    
    288,199
    
    
    
    300,2162003
    
    
    87,157
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36,067
    
    
    
    130,631
    
    
    
    224,865
    
    
    
    304,288
    
    
    
    321,0682004
    
    
    86,260
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,365
    
    
    
    91,719
    
    
    
    154,392
    
    
    
    168,4262005
    
    
    99,580
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,459
    
    
    
    83,739
    
    
    
    98,4802006 (2)
    
    
    142,959
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32,751
    
    
    
    59,2642007
    
    
    36,565
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,437
 Cumulative Collections as Percentage of Purchase Price (1)
 TotalThroughPurchase
    
    Purchase
    
    Total Through December 31,
    
    March 31,Period
    
    Price (3)
    
    1997
    
    1998
    
    1999
    
    2000
    
    2001
    
    2002
    
    2003
    
    2004
    
    2005
    
    2006
    
    20071997
    
    $
    4,345
    
    
    
    39
    %
    
    
    152
    %
    
    
    280
    %
    
    
    396
    %
    
    
    478
    %
    
    
    539
    %
    
    
    580
    %
    
    
    616
    %
    
    
    646
    %
    
    
    672
    %
    
    
    677
    %1998
    
    
    16,411
    
    
    
    
    
    
    
    29
    
    
    
    122
    
    
    
    214
    
    
    
    293
    
    
    
    360
    
    
    
    409
    
    
    
    443
    
    
    
    471
    
    
    
    491
    
    
    
    4961999
    
    
    12,924
    
    
    
    
    
    
    
    
    
    
    
    29
    
    
    
    117
    
    
    
    201
    
    
    
    276
    
    
    
    340
    
    
    
    392
    
    
    
    431
    
    
    
    461
    
    
    
    4682000
    
    
    20,592
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    43
    
    
    
    157
    
    
    
    267
    
    
    
    365
    
    
    
    449
    
    
    
    517
    
    
    
    569
    
    
    
    5792001
    
    
    43,116
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41
    
    
    
    158
    
    
    
    276
    
    
    
    382
    
    
    
    474
    
    
    
    545
    
    
    
    5602002
    
    
    72,114
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31
    
    
    
    129
    
    
    
    229
    
    
    
    323
    
    
    
    400
    
    
    
    4162003
    
    
    87,157
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41
    
    
    
    150
    
    
    
    258
    
    
    
    349
    
    
    
    3682004
    
    
    86,260
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27
    
    
    
    106
    
    
    
    179
    
    
    
    1952005
    
    
    99,580
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24
    
    
    
    84
    
    
    
    992006 (2)
    
    
    142,959
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23
    
    
    
    412007
    
    
    36,565
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4
 
 (1)
    
    Does not include proceeds from sales of any receivables.(2)
    
    Includes $8.3 million of portfolios acquired from the acquisition of PARC on April 28, 2006.(3)
    
    Purchase price refers to the cash paid to a seller to acquire a portfolio less the purchase
price refunded by a seller due to the return of non-compliant accounts (also referred to as
buybacks) less the purchase price for accounts that were sold at the time of purchase to
another debt purchaser. 23




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##### Table of Contents



Seasonality
   
 Cash Collections
 Quarter
    
    2003
    
    
    2004
    
    
    2005
    
    
    2006
    
    
    2007First
    
    $
    44,017,730
    
    
    $
    65,196,055
    
    
    $
    80,397,640
    
    
    $
    89,389,858
    
    
    $
    95,853,350Second
    
    
    51,190,533
    
    
    
    67,566,031
    
    
    
    84,862,856
    
    
    
    89,609,982
    
    
    
    Third
    
    
    48,622,829
    
    
    
    66,825,822
    
    
    
    78,159,364
    
    
    
    80,914,791
    
    
    
    Fourth
    
    
    53,988,333
    
    
    
    68,339,797
    
    
    
    76,490,350
    
    
    
    80,955,115
    
    
    
    Total cash collections
    
    $
    197,819,425
    
    
    $
    267,927,705
    
    
    $
    319,910,210
    
    
    $
    340,869,746
    
    
    $
    95,853,350
  For the three months endedMarch 31,2006
    
    2007Traditional collections
    
    
    50.9
    %
    
    
    49.4
    %Legal collections
    
    
    36.8
    
    
    
    37.4Other collections
    
    
    12.3
    
    
    
    13.2Total cash collections
    
    
    100.0
    %
    
    
    100.0
    %
 24




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##### Table of Contents



Face Value ofCharged-off
    
    
    
    
    
    
    No. ofAsset Type
    
    Receivables (2)
    
    
    %
    
    
    Accounts
    
    
    %(in thousands)Visa®/MasterCard®/Discover®
    
    $
    13,422,881
    
    
    
    48.4
    %
    
    
    6,568
    
    
    
    25.8
    %Private Label Credit Cards
    
    
    3,773,989
    
    
    
    13.6
    
    
    
    5,354
    
    
    
    21.0Telecommunications/Utility/Gas
    
    
    2,645,183
    
    
    
    9.5
    
    
    
    6,728
    
    
    
    26.5Health Club
    
    
    1,493,584
    
    
    
    5.4
    
    
    
    1,488
    
    
    
    5.9Auto Deficiency
    
    
    1,392,169
    
    
    
    5.0
    
    
    
    247
    
    
    
    1.0Installment Loans
    
    
    795,213
    
    
    
    2.9
    
    
    
    284
    
    
    
    1.1Wireless Telecommunications
    
    
    721,268
    
    
    
    2.6
    
    
    
    1,730
    
    
    
    6.8Other (1)
    
    
    3,502,493
    
    
    
    12.6
    
    
    
    3,020
    
    
    
    11.9Total
    
    $
    27,746,780
    
    
    
    100.0
    %
    
    
    25,419
    
    
    
    100.0
    %
 
 (1)
    
    Other includes charged-off receivables of several debt types, including student loan,
mobile home deficiency and retail mail order. This excludes the purchase of a single portfolio
in June 2002 with a face value of $1.2 billion at a cost of $1.2 million (or 0.1% of face
value) and consisting of approximately 3.8 million accounts.(2)
    
    Face value of charged-off receivables represents the cumulative amount of purchases net of
buybacks. The amount is not adjusted for payments received, settlements or additional accrued
interest on any accounts in such portfolios after the date we purchased the applicable
portfolio.  
    
    Fresh accounts are typically 120 to 270 days past due, have been charged-off by the
credit originator and are either being sold prior to any post charged-off collection
activity or are placed with a third party collector for the first time. These accounts
typically sell for the highest purchase price.
    
    Primary accounts are typically 270 to 360 days past due, have been previously placed
with one third party collector and typically receive a lower purchase price.
    
    Secondary and tertiary accounts are typically more than 360 days past due, have been
placed with two or three third party collectors and receive even lower purchase prices.
  25




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##### Table of Contents



Face Value ofCharged-off
    
    
    
    
    
    
    No. ofAccount Type
    
    Receivables (2)
    
    
    %
    
    
    Accounts
    
    
    %(in thousands)Fresh
    
    $
    1,491,713
    
    
    
    5.4
    %
    
    
    764
    
    
    
    3.0
    %Primary
    
    
    4,201,526
    
    
    
    15.1
    
    
    
    3,406
    
    
    
    13.4Secondary
    
    
    4,982,663
    
    
    
    18.0
    
    
    
    5,516
    
    
    
    21.7Tertiary (1)
    
    
    13,950,275
    
    
    
    50.3
    
    
    
    13,233
    
    
    
    52.1Other
    
    
    3,120,603
    
    
    
    11.2
    
    
    
    2,500
    
    
    
    9.8Total
    
    $
    27,746,780
    
    
    
    100.0
    %
    
    
    25,419
    
    
    
    100.0
    %
 
 (1)
    
    Excluding the purchase of a single portfolio in June 2002 with a face value of $1.2 billion
at a cost of $1.2 million (or 0.1% of face value), and consisting of approximately 3.8 million
accounts.(2)
    
    Face value of charged-off receivables represents the cumulative amount of purchases net of
buybacks. The amount is not adjusted for payments received, settlements or additional accrued
interest on any accounts in such portfolios after the date we purchased the applicable
portfolio.  Face Value ofCharged-off
    
    
    
    
    
    
    No. ofGeographic Location
    
    Receivables (3)(4)
    
    
    %
    
    
    Accounts
    
    
    %(in thousands)Texas (1)
    
    $
    4,079,394
    
    
    
    14.7
    %
    
    
    3,831
    
    
    
    15.1
    %California
    
    
    3,192,319
    
    
    
    11.5
    
    
    
    3,213
    
    
    
    12.5Florida (1)
    
    
    2,885,102
    
    
    
    10.4
    
    
    
    1,888
    
    
    
    7.4Michigan (1)
    
    
    1,800,889
    
    
    
    6.5
    
    
    
    2,240
    
    
    
    8.8New York
    
    
    1,607,473
    
    
    
    5.8
    
    
    
    1,135
    
    
    
    4.5Ohio (1)
    
    
    1,385,106
    
    
    
    5.0
    
    
    
    1,654
    
    
    
    6.6Illinois (1)
    
    
    1,199,502
    
    
    
    4.3
    
    
    
    1,483
    
    
    
    5.7Pennsylvania
    
    
    903,454
    
    
    
    3.3
    
    
    
    755
    
    
    
    3.0North Carolina
    
    
    813,230
    
    
    
    2.9
    
    
    
    587
    
    
    
    2.3Georgia
    
    
    746,138
    
    
    
    2.7
    
    
    
    660
    
    
    
    2.6New Jersey
    
    
    723,896
    
    
    
    2.6
    
    
    
    591
    
    
    
    2.3Arizona
    
    
    595,241
    
    
    
    2.1
    
    
    
    523
    
    
    
    2.1Other (2)
    
    
    7,815,036
    
    
    
    28.2
    
    
    
    6,859
    
    
    
    27.1Total
    
    $
    27,746,780
    
    
    
    100.0
    %
    
    
    25,419
    
    
    
    100.0
    %
 
 (1)
    
    Collection site located in this state.(2)
    
    Each state included in Other represents under 2.0% individually of the face value of total
charged-off consumer receivables.(3)
    
    Face value of charged-off receivables represents the cumulative amount of purchases net of
buybacks. The amount is not adjusted for payments received, settlements or additional accrued
interest on any accounts in such portfolios after the date we purchased the applicable
portfolio.(4)
    
    Excluding the purchase of a single portfolio in June 2002 with a face value of $1.2 billion
at a cost of $1.2 million (or 0.1% of face value) and consisting of approximately 3.8 million
accounts. Liquidity and Capital Resources
  26




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##### Table of Contents



Borrowings
  
    
    funds borrowed can be used to purchase portfolios of charged-off receivables and for
general corporate purposes;
    
    leverage ratio (as defined in the line of Credit Agreement) cannot exceed 1.5 to 1.0;
    
    debt to total capitalization ratio (as defined in the line of Credit Agreement) cannot
exceed 1.25 to 1.0; and
    
    tangible net worth must exceed $145.0 million plus 50% of net income after September
30, 2004, which required a balance of $204.6 million as of March 31, 2007.
  Cash Flows
     27




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##### Table of Contents



Future Contractual Cash Obligations
  Year Ending December 31,2007
    
    
    2008 (3)
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    ThereafterCapital lease obligations (1)
    
    $
    39,075
    
    
    $
    18,634
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Operating lease obligations (1)
    
    
    5,033,244
    
    
    
    5,767,019
    
    
    
    4,894,699
    
    
    
    3,946,520
    
    
    
    3,739,779
    
    
    
    14,364,097Purchased receivables (2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Line of credit (3)
    
    
    
    
    
    
    7,000,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Employment agreements
    
    
    611,250
    
    
    
    315,000
    
    
    
    105,000
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    5,683,569
    
    
    $
    13,100,653
    
    
    $
    4,999,699
    
    
    $
    3,946,520
    
    
    $
    3,739,779
    
    
    $
    14,364,097
 
 (1)
    
    Future minimum lease payments under capital lease obligations and operating lease obligations
have not been reduced by the amount of our restructuring activities that relates to the leased
equipment or facilities.(2)
    
    During 2007, we renewed three forward flow contracts, entered into one new forward flow
contract as well as maintained two on-going forward flow contracts that commits us to purchase
receivables for a fixed percentage of the face amount of the receivables. The four forward
flow contracts have terms beyond March 31, 2007 with the last contract expiring in December
2007. The four forward flow contracts have estimated monthly purchases of approximately $1.5
million, depending upon circumstances, and the other two on-going forward flow contracts have
estimated monthly purchases of approximately $13,800 over the next twelve months.(3)
    
    To the extent that a balance is outstanding on our line of credit, it would be due in May
2008. Off-Balance Sheet Arrangements
  Critical Accounting Policies
    28




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures about Market Risk
  
 Item 4. Controls and Procedures
   
 PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
   29




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##### Table of Contents



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 Companys Repurchases of Its Common Stock
  Average
    
    Total Number of
    
    Maximum Number ofTotal Number
    
    Price
    
    Shares Purchased as Part
    
    Shares that May Yetof Shares
    
    Paid per
    
    of Publicly Announced
    
    Be Purchased UnderPeriod
    
    Purchased (1)
    
    Share
    
    Plans or Programs
    
    the Plans or ProgramsJanuary 1,
2007  January 31,
2007
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    February 1, 2007 
February 28, 2007
    
    
    46,604
    
    
    
    15.00
    
    
    
    
    
    
    
    March 1, 2007 
March 31, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    46,604
    
    
    $
    15.00
    
    
    
    
    
    
    
    
 
 (1)
    
    The Company exercised its right to repurchase its shares from former employees at $15.00 per
share. 
 Item 6. Exhibits
 ExhibitNumber
    
    Description10.1
    
    
    2007 Annual Incentive Compensation Plan for Management (Incorporated by
reference to Exhibit 10.1 included with Current Report on Form 8-K filed on February 16, 2007)31.1
    *
    
    Rule 13a-14(a) Certification of Chief Executive Officer31.2
    *
    
    Rule 13a-14(a) Certification of Chief Financial Officer32.1
    *
    
    Section 1350 Certification of Chief Executive Officer and Chief Financial Officer
 
 *
    
    Filed herewith 30




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##### Table of Contents



SIGNATURES
  ASSET ACCEPTANCE CAPITAL CORP.Date: May 3, 2007
    By:
    /s/ Nathaniel F. Bradley IVNathaniel F. Bradley IVChairman of the Board, President and
Chief Executive Officer
(Principal Executive Officer)Date: May 3, 2007
    By:
    /s/ Mark A. RedmanMark A. RedmanSenior Vice President-Finance and
Chief Financial Officer
(Principal Financial and Accounting Officer) 31